Wednesday, November 17, 2010

Орлов Жжот!

Our social instincts compel us to think well of our fellow man. In spite of much evidence to the contrary, we think him competent to cast votes, to decide how to spend and borrow money, and how to bring up his own children. We persist in this conviction even as the manifest lack of competence at every level of American society causes it to careen toward ruin. We recoil at the thought of government bureaucrats separating the competent from the incompetent, making those who are incompetent, along with their children, wards of the state, remedying their incompetence through strict discipline when possible, and consigning the rest to a lifetime of manual labor in service of society. Many of us quite justifiably think that the government bureaucrats are themselves incompetent, or worse. Those who no longer trust the competence of either the government or our fellow man instead put their faith in corporations or in churches or even in bloggers and internet newsgroups (pathetic, I know). They may preserve their sanity by doing so, but it does nothing to change the big picture. Presumably, it is better to be a competent observer of collapse than an incompetent one.

Of course, the label of generalized American incompetence seems to cast too wide a net. After all, most of us have the competence to not starve when provided with cans of baked beans and a can opener. But it seems that each and every one of us is forced to plead incompetence when presented with the task of judging the value of various figments of financial imagination which comprise fully half of the increasingly fictional US economy, for the depths of incompetence on which this crumbling edifice floats are truly unfathomable. It started with incompetent public officials who blithered on about “ownership society,” which is a boneheaded idea. This, in turn, empowered individuals who were incompetent to make financial decisions to borrow vasts sums of money, with the loans backed by an implicit government guarantee. It proceeded to incompetent appraisers, who inflated the value of the collateral based on circular reasoning (value = price = value), and to incompetent bankers, who improperly documented, resold and bundled the loans into unfathomably faulty Collateralized Debt Obligations. It proceeded to incompetent government officials who treated these faulty documents as valuable and backed up their value with public money which they are yet to collect in taxes. It proceeded to incompetent judges who rush through foreclosures and throw people out of their homes based on faulty or nonexistent documentation of ownership.

Some people express umbrage at all this, harrumphing about this and that technical defect in the paperwork, throwing around big words like “personal responsibility” and “fraud.” Some of them claim that a concerted effort by brilliant legal and financial minds must be made, to flush all of this illegality out of the system, to determine what all of this soiled paper is really worth, to punish the guilty and to restore dignity to the innocent who were harmed along the way. In this they have so far been quite incompetent: they have vociferously yet impotently complained about a matter over which not a single one of them is competent to exercise any degree of control. An attempt to unscramble all of the faulty financial paperwork is bound to lead to a ridiculous death by a thousand paper cuts. About half of the US economy consists of financial froth that is floating above an unfathomable abyss of incompetence, and once that froth blows away, what will remain of the US economy will turn out to look like a deflated, shriveled little thing, at a standstill because it will be unable to borrow internationally to finance fuel imports, full of defunct financial institutions right up to and including the Federal Reserve, with a worthless currency that nobody is willing to accept as payment, and full of people furiously shaking their tiny fists, hurling their impotent rage at an indifferent sky.

How does a “can do” nation degenerate to such depths of incompetence? A key insight is offered by the Dunning-Krueger effect, defined and experimentally tested by Justin Kruger and David Dunning at Cornell University. Kruger and Dunning proposed that, “for a given skill, incompetent people will:

1. tend to overestimate their own level of skill; 2. fail to recognize genuine skill in others; 3. fail to recognize the extremity of their inadequacy; 4. recognize and acknowledge their own previous lack of skill, if they can be trained to substantially improve.”

Krueger and Dunning, and other experimenters, have shown this effect to be quite pronounced. Competent people initially assumed that others were competent as well, and were able to correct their misperception once they were allowed to examine the work of others. Incompetent people, on the other hand, were only able to recognize competence in others after being taught to recognize their own incompetence. Thus, a weaker version of point 4 above suffices: incompetent people do not need to become competent, but to able to judge the superior competence of others they do have to gain some insight into their own incompetence.

But now comes an embarrassing fact: Krueger and Dunning carried out their initial research on American subjects, and their results squared well with their hypothesis, but when their experiments were repeated with Europeans and East Asians, a different picture emerged. With Europeans, the effect seemed barely measurable, while with East Asians the exact opposite picture emerges: Dr. Steven Heine of the University of British Columbia has found that East Asians tend to underestimate their abilities, focusing on self-improvement and group cohesion. I have come across examples of such a systematic error before. I recall listening to a certain researcher of human behavior at Yale, who was discussing the results he got by doing experiments on his students, which he blithely extrapolated to all of humanity. But I suspected that an error had crept into his experiments, due to his unstated and unquestioned assumption that his little sample of Yalies was representative of the inhabitants of Planet Earth rather than Planet Yale (which is what I walked away thinking).

And so it turns out that this blind faith in everyone and sundry's competence is quite specifically an American trait. I invite cultural anthropologists to concentrate their efforts on ...читать дальше